What Are the Different Types of Payment?

With the rise of subscription services and ecommerce, there are more types of electronic payment than ever. “Cash or check” has given way to online transfers and contactless payments. Here’s a look at the different types of payment businesses can accept. Each comes with its own pros and cons to consider.

How many types of payment methods are there?

There are over 200 different types of payment methods out there. Many of these can be grouped together into categories. For example, Samsung Pay, Apple Pay, and Google Pay are all forms of digital wallets, while Klarna and Afterpay are both grouped together as Buy now, pay later (BNPL) payments.

Types of payment: pros and cons

Here’s an overview of the main types of payment along with their pros and cons to consider. This list covers the traditional types of payment, such as cash and checks, along with newer, alternative forms of payment like BNPL and mobile options.

Cash and paper checks

Cash was once king, and although it’s dropped in popularity it remains a popular payment method for American consumers. According to the 2022 Federal Reserve Diary of Consumer Payment Choice, 20% of transactions were completed using cash – up from 19% in 2021. A 2021 GoCardless study found that paper checks ranked near the bottom of consumer preferences for recurring payments.

Pros of cash

• No fees or charges

• Customers don’t need a bank account

• User-friendly, traditional method

Cons of cash

• Often unsuitable for ecommerce transactions

• Customers are less likely to make a high value purchase

• Time consuming processing

Checks carry similar pros and cons. One thing to note is that you’ll need to wait on bank processing times once you’ve deposited the check, though customers are more likely to make a big purchase with this method.

Debit, credit, and prepaid cards

The next types of payment involve cards. Credit cards are issued by credit service providers like Visa, Mastercard, and American Express. Debit cards are issued by the customer’s own bank and linked to their bank account. Prepaid cards may be issued by either of these, as well as individual retailers or other processors. Businesses must have a merchant account to process card payments and follow all security protocols for PCI DSS compliance. For in-person payments, the Federal Reserve study found that 44% of consumers preferred debit cards and 32% of shoppers preferred credit cards.

Pros of card payments

• Customers are more likely to make large purchases

• Card payments are popular and trusted

• Suited to online transactions

Cons of card payments

• You’ll pay transaction fees

• You will need a POS device for in-person purchases

• You will need a merchant account for settlement

Digital wallets

Mobile payments and digital wallets facilitate online payment using a customer’s smartphone. Examples include services like Google Pay and Apple Pay, which function as a digital version of the traditional wallet. A customer stores all their payment details within a secure location, allowing them to make payments online and in person.

Pros of digital wallets

• Customers enjoy a convenient, contactless checkout

• They reduce the risk of cards being lost and stolen

• They’re suitable for large and small purchases

Cons of digital wallets

• You’ll need a POS device for in-person purchases

• You’ll pay processing fees per transaction

• Transaction processing times take 1-3 days on average

Buy now, pay later (BNPL)

While there are many alternative payment methods gaining in popularity, one to watch is buy now, pay later or BNPL. Over half of Americans have tried BNPL, and the market is expected to grow with an estimated compound annual growth rate of 32.5% between 2022 and 2028. Using a BNPL service like Klarna lets your customers make their payments in installments.

Pros of BNPL

• It encourages customers to make larger purchases

• It’s accessible to customers with less-than-perfect credit

• It’s convenient to set up with providers

Cons of BNPL

• You’ll pay a fee per transaction

• Not all payment gateways offer this option

• Settlement times can take a few days

Bank transfers

Bank-to-bank transfers are one of the most popular electronic types of payment, particularly for international purchases. All a customer needs are their banking details to send payment, including the account number and IBAN or SWIFT code for international transfers.

Pros of bank transfers

• They’re convenient to set up

• They are securely processed through banking networks

• They are suitable for large purchases and wholesales B2B orders

Cons of bank transfers

• Processing times can take up to a week or more

• They are stalled by weekends and holidays

• They are prone to manual error

ACH debit payments

Another type of bank payment to consider is ACH debit, which is an ideal way for businesses to collect recurring payments like memberships and subscriptions. It only requires a single mandate from your customer to get started, after which time you can pull funds directly from your customer’s bank account on the day it’s due.

Pros of ACH debit

• It’s easy to set up

• It ensures payments are made on time

• It cuts down on processing times

Cons of ACH debit

• It’s best suited to recurring payments

• Customers might forget about the mandate

• Customer bank details can change without notification

Types of payment methods: how to choose

While these are the primary types of payment you’re likely to encounter as a business owner, there are also an increasing number of alternative methods from cryptocurrency to QR codes. With so many options out there, how can you best cater to your customers? Most payment gateways enable businesses to offer multiple payment methods from a single checkout page.

It’s often beneficial to blend card payments with bank transfers and ACH debit, for example. GoCardless offers the best of both worlds with an ACH debit solution for recurring payments and Instant Bank Pay for one-off payments. Combining the speed and security of open banking with the convenience of ACH payments, your business can tackle multiple transactions from a single dashboard.

We can help

GoCardless is a global payments solution that helps you automate payment collection, cutting down on the amount of financial admin your team needs to deal with. Find out how GoCardless can help you with one-off or recurring payments.